Maintaining Financial Records
Regardless of your how your business is structured, maintaining financial records is crucial to business success. The following describes some of the reasons why financial records are important and how to get on track with your record keeping.
Importance of Financial Records
- Business Decisions
Timely financial information is a great asset when it comes to making business decisions. By reviewing your income and expenses on a regular basis, you can identify areas of strength and weakness and implement changes to improve financial results. For example, if you notice a decline in sales from the last quarter you can investigate why this is happening and take corrective action. Often financial changes go unnoticed until the business is in an unfavourable position. Up-to-date financial information can also help estimate tax liabilities prior to year end so that you have time to set aside funds if needed.
Additionally, you will be able to make investment decisions based on company cash flow. If you are looking at purchasing some new equipment, expanding your operations, hiring employees, etc., then you need to know that your business can afford to do so.
- Filing Requirements
Businesses have many filing requirements including personal or corporate tax returns (depending on business structure), GST filing, source deductions, WCB returns, etc. The penalties and interest charged on late-filed returns can be significant. Up-to-date financial records ensure that the right information is available when it is time to file.
- Save Money
Maintaining accurate financial records can maximize your tax-deductible expenses and the tax credits that you are able to claim. Paying less in income taxes means that you have more money left over to invest and grow your business. Conversely, you might become aware of unnecessary business expenses through analyzing your records and can eliminate these costs.
- Less Stress
When it comes time to prepare your year end financial statements and/or tax return, organized records can streamline the process. You won’t be trying to catch up on a year of record keeping and try to track down missing invoices after a significant amount of time has passed. Requesting a duplicate copy of a missing invoice or figuring out an unknown deposit is a lot easier a month after the transaction than a year after the fact.
Periodically, CRA selects a particular category to review. If you are selected, having accurate records can make responding to their requests seamless and relatively stress-free.
How to Keep Good Records
The best system for bookkeeping will depend on the complexity of your business, the number of transactions, and personal preference. Some people like to keep their records in a manual ledger or in excel. These choices are a great, cost-effective solution. Accounting programs are set up for double-entry and offer reconciliation features. These programs offer many features that a business owner may find beneficial, such as default financial reports, invoicing, cheque printing, payroll calculations, etc.
If you are new to keeping financial records, it can be an overwhelming process. If you would like to learn how to keep records yourself, hiring an accountant to help you select and setup a system is a great choice. He or she will be able to make sure that the accounts are set up properly and provide support when you need it.
You might alternatively decide that bookkeeping is not the best use of your time and resources. If this is the case, you can outsource the work to a bookkeeper or an accountant who can compile the records for you on a regular basis.
If you would like to discuss the best option for you and your company contact me today!
Krystal Stoutenberg, CPA, CA